A future-advance clause is a contractual provision that permits the lender to extend additional loans in the future, even if they are not required to do so. This clause is commonly included in agreements involving collateral, like mortgages or deeds of trust. It enables the borrower to obtain further funds in the future without the need for a new agreement or additional collateral.
A future-advance clause is a provision in a security agreement that encompasses additional loaned amounts on current collateral or collateral that will be obtained in the future. This clause is included in the agreement regardless of whether the secured party is obligated to provide the advances. It is commonly found in an open-end mortgage or deed of trust, which permits the borrower to borrow additional sums in the future, secured under the same instrument and by the same security. For instance, let’s consider the case of John who obtains a mortgage on his house. The mortgage incorporates a future-advance clause, enabling him to borrow additional sums in the future, secured under the same mortgage. Later on, John decides to acquire a home equity loan for some renovations. Due to the future-advance clause, John is not required to sign a new security agreement for the home equity loan. The home equity loan is secured under the same mortgage as the original loan. Another example involves a business obtaining a line of credit from a bank. The line of credit includes a future-advance clause, allowing the business to borrow additional sums in the future, secured under the same line of credit. This can be advantageous for businesses that need periodic borrowing to cover expenses or invest in growth. These examples demonstrate how a future-advance clause can streamline the borrowing process and facilitate borrowers’ access to additional funds without the need for a new security agreement.
A future-advance clause is a provision in a loan agreement that allows the lender to provide additional funds to the borrower in the future, without requiring the borrower to enter into a new loan agreement.
Under a future-advance clause, the borrower can request additional funds from the lender, up to a predetermined limit, without having to go through the entire loan application process again. The borrower can access these funds as needed, as long as they do not exceed the agreed-upon limit.
The purpose of a future-advance clause is to provide flexibility to the borrower, allowing them to access additional funds without the need for a new loan agreement. This can be particularly useful in situations where the borrower’s financial needs may change over time.
In most cases, a lender cannot refuse to provide future advances as long as the borrower is within the predetermined limit and has complied with the terms and conditions of the loan agreement. However, the lender may have the right to refuse future advances if the borrower has defaulted on the loan or breached any other terms of the agreement.
Yes, a future-advance clause can be modified or removed if both parties agree to the changes. This typically requires an amendment to the loan agreement, which should be documented in writing and signed by both the lender and the borrower.
The use of future advances is typically subject to certain limitations outlined in the loan agreement. These limitations may include restrictions on the purpose for which the funds can be used or a requirement for the borrower to provide documentation justifying the need for additional funds.
Yes, a future-advance clause can be included in various types of loan agreements, such as mortgages, lines of credit, or business loans. The specific terms and conditions of the future-advance clause may vary depending on the type of loan and the agreement between the parties.
In general, a future-advance clause must be explicitly stated in the loan agreement to be enforceable. If the clause is not included in the agreement, the lender may not be obligated to provide future advances.
Yes, a borrower can typically request future advances even if they have not fully utilized the initial loan amount. However, the lender may have the right to review the borrower’s financial situation and assess their ability to repay before approving any additional funds.
Yes, a future-advance clause can be beneficial for both parties. It provides the borrower with flexibility to access additional funds when needed, while allowing the lender to maintain an ongoing relationship with the borrower and potentially earn additional interest on the future advances.
This site contains general legal information but does not constitute professional legal advice for your particular situation. Persuing this glossary does not create an attorney-client or legal adviser relationship. If you have specific questions, please consult a qualified attorney licensed in your jurisdiction.
This glossary post was last updated: 17th April 2024.
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